CORPORATE GOVERNANCE AND INFORMATION ASYMMETRY AMONG UAE LISTED COMPANIES

CORPORATE GOVERNANCE AND INFORMATION ASYMMETRY AMONG UAE LISTED COMPANIES

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ABSTRACT

This study uses the framework of the agency theory to systematically investigate the relationship between corporate governance mechanisms; board of directors’ characteristics (board size, board independence, duality, board meetings, and director’s ownership) and audit committee size with the level of information asymmetry in UAE. The multiple regression analysis provides evidence that board size is significantly positive related to information asymmetry. While board independence, board meetings, directors’ ownership and audit committee size have a significantly negative association related to information asymmetry. The findings show that the information asymmetry among the United Arab Emirates (UAE) companies is high and the implementation of the Code of Corporate Governance more likely to be underdevelopment.

Keywords: corporate governance, information asymmetry, shareholders, United Arab

Emirates (UAE)


CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The asymmetry lies in the difference between what the most informed stakeholders know but the uninformed stakeholders are not informed about certain information. This link impacts growth options, risk, managerial incentives and other factors which mean that the relation does not stem out from an intrinsic doubt regarding the firm performance (Hilary, 2006). Information asymmetry also means when one or more investors are privy to the firm’s value while the rest can only access public information (Brown & Hillegeist, 2007). Relationships between companies and upstream suppliers have always been characterized by information asymmetries in a way that one member of the party to the transaction has more information compared to the other (Martin & Johnson, 2010). For instance, information asymmetries stem from hidden actions, meaning to say that the firm has no idea how the upstream supplier will react when he is acting in an unethical way.

The actual elimination of information asymmetry’s negative impact can be carried out through maximizing the access to information regarding the company that is nonstandard and through the increase of the information visibility of what the company offers the stakeholders. The risk lies in the varying interpretation of the information that the company provides which may lead to different stakeholder behavior (Jasso, 2009). According to Mercer (2004), information precision is an attribute of information that underlies disclosure credibility. It is evident that asymmetric information is related with information disclosure. In other words, the less the information is transparent, the lower the information disclosure will be (Kong, Xiao & 2 Liu 2011).

Corporate governance is a set of tools or procedures that monitors and controls the organization in its quest to achieve goals and maximize long-term shareholders’ benefits. Therefore, effective corporate governance is importance to protect the interests of shareholders, customers, suppliers, employees and government by guaranteeing that firms are made accountable for their actions (Vinten, 1998). In 2004, the OECD underlines that corporations need to be run, primordial, in the interest of shareholders (OECD 2004). But in corporate governance systems, the company is viewed by the stakeholder as a set of expectations akin to a polycentric vision of the corporate governance systems which has the company in its center with the stakeholders attempting to govern surrounding it (Marcel, Or


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